Why NQ Mobile Inc. Stock Plummeted Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of NQ Mobile plummeted by as much as 37% early Thursday after the Chinese Internet services specialist announced its independent auditors have requested to expand the scope of that audit. NQ also announced changes to its board of directors.

So what: Just yesterday, shares of NQ Mobile briefly skyrocketed following what turned out to be unfounded rumors the company -- which is fighting allegations of fraud originally leveled late last year from noted short-seller Muddy Waters -- was close to filing its long-overdue annual report.

This morning, however, NQ stated its independent auditor has "communicated [...] that it would need to perform additional procedures and expand the scope of its 2013 audit work." The request, NQ says, came sometime after the June 4, 2014, release of its summary findings of the independent investigation. In that summary, NQ insisted no evidence of such fraud was found.

Now what: Curiously, NQ Mobile says it's only "considering" the auditor's request, and will "provide a further update when available." What's more, the audit update was buried in a single paragraph at the bottom of NQ's lengthy press release, which first justified a shake-up in NQ's board of directors and audit committee. Most notably, NQ's current chair of the audit committee informed the board she would be stepping down "due to personal reasons not related to her role at the company effective on July 6, 2014."

Multiple red flags in recent months already had me doubting NQ would receive an unqualified audit opinion, so I just couldn't bring myself to get behind the stock. Today's news, however, has me fully convinced investors would be wise to stay as far as possible away from NQ Mobile.

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